Payment Shock is Coming for Canadian Mortgage Holders – What You Need to Know
What is Payment Shock?
Payment shock is what happens when your monthly mortgage payments suddenly jump—often by hundreds of dollars—at the time of renewal. And unfortunately for millions of Canadian homeowners, that’s exactly what’s headed their way between now and 2026.
Whether you locked in a super-low fixed rate back in 2021 or you’ve been riding the rollercoaster of a variable rate mortgage, renewal time could mean an unpleasant surprise for your wallet. And the Bank of Canada is now openly warning that it’s a growing national concern.
Why Are Experts Sounding the Alarm?
In its most recent Financial System Review, the Bank of Canada didn’t mince words: household debt and rising mortgage costs are now one of the biggest risks to Canada’s economic stability.
The central bank is particularly worried about how rising interest rates are colliding with Canada’s already high housing prices and historically large mortgage sizes. It’s not just about affordability anymore—it’s about whether households can even keep up with their existing debt obligations as payments climb.
What’s Causing This Wave of Payment Pressure?
It all comes down to the fact that mortgage rates have risen much faster than most homeowners expected.
In 2022, a typical new mortgage used around 16% of a household’s gross income. That number has since jumped to nearly 19%, with over a quarter of all new mortgages now eating up more than 25% of income—the highest level seen in over a decade.
Even if you’ve been making steady payments on your fixed-rate mortgage, the rate you’re currently paying could be half of what your renewal will be.
📉 How Mortgage Payment Shock Builds at Renewal
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Step 1: Low Rate Entry (2020–2021)
Borrowers locked in 5-year fixed mortgages at 1.5%–2.0% when rates were at record lows.
Borrowers locked in 5-year fixed mortgages at 1.5%–2.0% when rates were at record lows.
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Step 2: BoC Rate Hikes (2022–2023)
The Bank of Canada raised rates aggressively, lifting market mortgage rates above 5%.
The Bank of Canada raised rates aggressively, lifting market mortgage rates above 5%.
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Step 3: Renewal Reality (2024–2026)
Borrowers face renewals at double their original rate, increasing monthly payments by 20–40%.
Borrowers face renewals at double their original rate, increasing monthly payments by 20–40%.
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Step 4: Payment Shock
Without proactive planning, this can cause financial strain or increased defaults for some households.
Without proactive planning, this can cause financial strain or increased defaults for some households.
Tip: Use a mortgage renewal calculator to see your projected new payment.
How Much Will My Mortgage Payment Increase?
Most Canadian mortgages renew every 5 years. That means a large chunk of homeowners who signed in 2020 or 2021 (when 5-year fixed rates were below 2%) will be renewing in 2025 or 2026—and facing rates closer to 4.5% or even 5.5%.
Here’s a quick example:
$500,000 mortgage at 1.89% (2021)
→ Monthly payment: $2,084
$500,000 mortgage at 5.19% (2025 projection)
→ Monthly payment: $2,963
That’s an $879/month increase, or over $10,500 more per year—a nearly 42% jump.
Who Will Be Hit Hardest?
While every borrower renewing between now and 2026 will feel some level of pressure, those at greater risk include:
- Households who pushed their budgets to buy during the 2021 peak
- Borrowers with large mortgage balances and small down payments
- Variable rate mortgage holders who are already at trigger points
- Owners in high-priced provinces like Ontario and British Columbia
The Bank of Canada has acknowledged that as these households face renewals, the risk of payment default rises too—especially if their income hasn’t kept pace with inflation.
How to Prepare Now
If your mortgage is coming up for renewal in the next 12–24 months, here’s what you can start doing:
- Use a payment shock calculator to estimate your future monthly cost.
- Start budgeting today for a higher payment—even if it hasn’t hit yet.
- Talk to a mortgage expert early to compare fixed vs. variable renewal strategies.
- Consider extending amortization to reduce monthly payments (if cash flow is tight).
- Check your credit score and income documentation—it will impact your renewal rate.
Final Thoughts
We’re heading into a period where mortgage renewal isn’t just a paperwork formality—it could be a serious financial turning point. While the thought of payment shock is stressful, there are ways to get ahead of it.
The worst thing you can do is wait and hope. The smartest move is to start preparing now, understand your options, and renew with confidence.
😮 Payment Shock is Coming—Are You Prepared?
If rising rates hit your renewal, reduce the shock with a blend-and-extend strategy—no penalty, just smarter planning.
📞 Get Pre-Approved With Nesto or Compare With Local Brokers in Your Area
Explore exclusive online rates like Nesto’s 4.69% or speak to a licensed broker near you. Find out which offer saves you more.
Talk to a Mortgage Expert
Clara Desai
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